Financial Analysis of Funding and Pricing Strategies for Tourism

This report provides a comprehensive analysis of finance and funding within the travel and tourism industry, using Thomas Cook Group Plc as a case study. It begins by examining the importance of cost and volume in financial management, including direct, indirect, and variable costs, and the application of Cost Volume Profit analysis and break-even analysis. The report then delves into various pricing methods employed in the sector, such as discounted pricing, cost-plus pricing, market-led pricing, and value-adding, and discusses factors influencing the profitability of tourism businesses, including current trends, economic and political environments, and internal factors like planning and bed debts. Furthermore, it explores different types of management accounting information, including financial statements, budgets, and variance analysis, and their role in decision-making. Finally, the report analyzes sources and distribution of funding for capital projects in tourism, providing a holistic view of financial management within the industry.

Finance and Funding
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
1.1 Importance of cost and volume in financial management of travel and tourism business....4
1.2Analyzing pricing methods used in the travel and tourism sector.........................................5
1.3 Factors influencing profit for Thomas Cook.........................................................................6
TASK 2............................................................................................................................................7
2.1 Different types of management accounting information......................................................7
2.2 Using management accounting information as decision-making tool..................................8
TASK 3............................................................................................................................................9
3.1Interpretating financial accounting of TUI Travel Plc...........................................................9
TASK 4..........................................................................................................................................11
4.1Analyses sources and distribution of funding for the development of capital projects
associated with tourism.............................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
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TABLE OF FIGURES
TABLE OF TABLES
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INTRODUCTION
Finance and funding is an imperative way to manage resources and enables organization
to expand business at marketplace. It assists management to manage cost and make effort in
relation to increase overall profitability. Present report is about Thomas Cook Group Plc that is
based in UK and provides wide range of services to different types of visitors. Further, report
focuses on pricing methods and uses of management accounting information that contribute
towards managing all business activities. It facilitates to deliver good quality of services to large
number of buyers. In addition to this, ratio of organization is also analyzed that assists to provide
information regarding performance of firm for specified time span.
TASK 1
1.1 Importance of cost and volume in financial management of travel and tourism business
There are several types of costs associated with services of Thomas Cook that affects
overall profitability of firm to a great extent. It consists of direct, indirect and fixed cost. Along
with that, variable cost and allocation cost are also included that increase price of services. For
example, direct cost includes labor cost who are directly associated with providing services to
buyers whereas indirect cost is administrative cost such as salaries of managers, electricity
charges and transportation cost (Acton, 2013). These two costs vary as per the scale of
production by which organization have to add on extra margin in services so as to increase
overall rate of return. Here, fixed cost remains constant during the whole production life cycle
whereas variable costs vary as per the changes in the volume of production. It affects
profitability of Thomas Cook to a great extent. Owing to this, firm manages its cost in an
effective way that contribute towards lowering down of cost of production and providing
services to buyers on affordable prices (Elearn, 2013). It enables organization to increase number
of customer and deliver them good quality of services so as to expand business over the globe.
For accessing information of cost of different types of services that are being provided by
Thomas Cook, Cost Volume Profit analysis proved to be effective. It is the most suitable method
to keep record regarding profit as well as cost of services by which organization can be able to
reduce cost of production and increase overall rate of return. It facilitates to create competitive
edge of the firm in the marketplace. It enables finance manager of firm to have proper recording
regarding different types of costs(Grieve, 2013). It aids to anticipate future cost that can be
occurred to management due to changes in the external as well as internal factors. It leads to
manage all business activities in an effectual manner.
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Break-even analysis is an imperative way to give upward direction for future
businessmen activities. It helps management of Thomas Cook to analyze overall production
procedure and make changes in the same in order to go beyond Break Even Point (BEP). It is the
key position thereby organization can come to know that they are getting neither profit nor loss.
After reaching at BEP, organization move towards higher volume of production so as to increase
profitability. It assists firm to deliver good quality of services to large number of buyers and
facilitates them to quick access to affordable services (Healy and Palepu, 2007). BEP also comes
under Cost Volume Profit analysis that assists management of the cited company to manage its
business activities. It depicts detail about volume of profit by deducting overall expenses that
have been incurred due to providing several types of services. Along with that, economies of
scale is considered that helps to decrease cost of production and increases overall rate of return
of the firm. It facilitates to create distinctive image at the marketplace and achieve long as well
as short term objectives of Thomas Cook.
1.2Analyzing pricing methods used in the travel and tourism sector
Pricing is a vital way to ensure higher productivity as well as greater profitability that
facilitates organization to make effort in relation to increasing overall rate of return. Following
types of pricing methods are used in by Thomas Cook- Discounted pricing-It is the most important pricing method by which Thomas Cook can
make an attempt in relation to increasing number of customers (Joshi, Al-Mudhaki and
Bremser, 2003). It is also effective in order to create awareness among large number of
visitors. In this pricing, management of Thomas Cook offer services at lower price in the
off season. It facilitates to create distinctive image of firm in the marketplace and deliver
good quality of services to large number of buyers. Cost plus pricing- This pricing method is key to success for all kind of businesses. Here,
management of Thomas Cook add margin on the cost of services so as to cover the cost
and increase overall rate of return. It facilitates to ensure smooth flow of production and
creates competitive edge of firm in the marketplace (Kierulff and Petersen, 2009).
Further, it is suited in all type of situation by which corporation can ensure about long run
survival of business. Market-led pricing- It is another important way to deliver good quality of services to
large number of visitors. Here, management of Thomas Cook offer several types of
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discount and offers that leads to address need of different types of customers. On the
other hand, discount are not offered during Christmas and other festival that aid to cover
losses of the firm. Here, prices are set on the basis of seasonality and prevailing situation
in the market that facilitate to cover increase overall rate of return (Nga and Yien, 2013).
 Value adding-It is the most common pricing method by which firm can be able to deliver
good quality of services to large number of visitors. Here, prices of product increase with
addition of extra features in the product. It maximizes cost of production and that
increase final prices. It assist firm to add extra margin on the product that enhances
overall rate of return of firm. It enables organization to cater need of different types of
visitors and create competitive edge of the same in the marketplace. It is also imperative
to improve quality of services by which Thomas Cook can be able to cover large market
potential.
1.3 Factors influencing profit for Thomas Cook
There are several factors which affect profitability of Thomas Cooks in many ways. It has
direct or indirect impact of both internal as well as external environment. Here, internal
environment consist of cost, policies, structure of management. Due to changes in the internal
environment, management need to make changes in the present state of affairs. Further, external
changes are those which are indirectly affect overall performance of Thomas cook. These are as
follows- Current trend-It is the most important factor which has direct impact on the sales
turnover of Thomas cook. Here, firm need to make changes on the basis of prevailing
scenario so as to increase overall profitability as well as productivity (Callahan, Stetz
and Brooks, 2011). In this, visitors may prefer different types of services due to changing
life style and changing preferences. Social environment-It is the major areas that changes time to time and affect performance
of organization to a great extent. Here, cultural values and assumption forces company to
provide device accordingly. For example, families like to visit cultural and heritage
beauty of country in order to enhance general knowledge (Atkinson, 2007).
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 Political environment-Political changes are those which affect performance of Thomas
Cook to a great extent. Due to changes in the political parties, firm can bear losses
because of changing rules and regulation related to export and import. Bed debts-It is another factor which decreases profitability of Thomas cook to great
extent. It is happened because of providing services on credit that create barrier in
recovering the expenses. Increasing ratio of bed debts create uncertainty for future
business activities and has negative impact on the performance of company (Yazdifar,
2004). Poor planning-Planning is the imperative task by thereby management execute new
project and make effort in relation to catering need of different types of buyers. Due to
poor planning,firm have to bear losses and affect overall rate of return of Thomas Cook.
For example, expansion of business in another geographical areas with improper market
research may lead to increased rate of deficit (Macintosh and Quattrone, 2010). It does
not aid to give competitive edge to organization.
 Economic environment-It is the main factor that hampers profitability of firm to a great
extent. Due to increase interest rate of changing economic policies, buying power of
visitors decreases. It has direct impact on sales of the firm and lower down profitability of
firm (Schoute and Wiersma 2011). In such type of situation, organization offers
discount and several lucrative offer for visitors so they can reduce the negative impact of
inflation. However, sales turnover decreases to a great extent and it becomes hard for
organization to survive in the market.
TASK 2
2.1 Different types of management accounting information
For operating business of Thomas Cook management need to keep record of different
types of management accounting information. It facilitate to manage all business activities in
very efficient manner so as to increase overall rate of return and deliver good quality of services
to large number of visitors. It consists of financial statements, budgets and variance analysis as
well as management information system. With the help of management information system,
management of Thomas Cook come to know about the requirement of competent personnel and
retaining them for long span of time (Elmassri and Harris, 2011). It contribute towards
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increasing effective management of personnel by which several types of need of visitors can be
addressed properly. It enables organization to cope up with changing scenario and also make
them able to achieve long as well as short term objectives. Along with that, financial statements
are the imperative source by which firm access to different types of accounting information such
as profitability, liquidity, tax payment and solvency of firm. It enables stakeholders to invest in
the firm and increase their own rate of return so as to increase competitive edge of firm in the
marketplace. It also assist Thomas Cook to adopt several types of strategies that aid to reduce
cost of production and ensure increased rate of return. Among the financial statements, balance
sheet is the most important way that depicts financial position of firm over a specified time span.
It facilitate to expand business over the glove and increase number of visitors. It assist firm to
cater need of different types of stakeholders so as to create competitive edge of firm in the
marketplace (Tauringana and Afrifa, 2013). By accessing financial statements, organization can
be able to keep record of tax payment and per unit cost and addition of margin on the sales
turnover. It assist Thomas Cook to build trust with stakeholders and provide good quality of
services to different types of visitors. It is also imperative to analyze performance of company
related to specified time span. It leads to achieve long as well as short term objectives of firm.
On the other hand, budget is another way by which management accounting information can be
accessed. It facilitate to plan for future business activities and accomplished set objectives in
order to reach at the aim of firm.
2.2 Using management accounting information as decision-making tool
Management accounting information plays significant role for decision making that assist
management of Thomas Cook to deliver good quality of services to large number of buyers.
With the help of management accounting information, company make decision regarding
implementing new protect and expansion of business. It also assist firm to take decision for
reducing cost of production and advertising for new services in order to attracting large number
of visitors (Cesarotti, Silvio and Introna, 2009). Here, budget is the imperative way to allocate
financial resources that facilitate to control expenses and addresses several types of need of
visitors. It is also helpful for acquiring qualified personnel and enables them to make effort in
relation to increasing overall rate of return of firm. It facilitate firm to manage all business
activities in an effectual way so as to archive long as well as short term objectives of firm. On the
basis of budget and management information system, firm can be able to predict its future
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performance that enables them to deliver good quality of services to large number of visitors. On
the basis of rate of return and taking advantage of ratio analysis, management can come to know
about the its performance (Pavlatos and Paggios, 2009). It enables them to take decision
regarding launching new services and adopting effective strategy that aid to reduce cost of
production and increasing overall rate of return.
TASK 3
3.1Interpretating financial accounting of TUI Travel Plc
Ratios Formulas 2013 2012
Liquidity Ratio
Current Assets 3252 2348
Current Liability 5870 5085
Current Ratio Current Assets/ Current
Liability
2013=(3252/5870)
2012=(2348/5058)
0.55 0.46
Quick Ratio
Current Assets 3252 2348
Less: Inventory -57 -61
Less:Liquid assets 1753 830
Current Liability 5870 5085
Quick Ratio Current Assets – Inventory/
Current Liability
2013=(3252-57-1753)/5870
2012=(2348-61-830)/5085
0.24 0.28
Debtors
collection period
37.86 days 38.90 days
Creditors’
payment period
70.05 days 69.85 days
Inventory
Turnover
COGS 13395 12965
Inventory 57 61
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Inventory
Turnover Ratio
COGS/Inventory
2013=13395/57
2012=12965/61
235 212.54
Profitability
Ratio
Gross Profit 1656 1495
Sales 15051 14460
GP Ratio GP/Sales
2013=1656/15051
2012=1495/14460
0.11 0.1
Net Profit margin
Profit for the year 63 137
Sales 15051 14460
Profit margin Profit for the year/ Sales
2013=63/15051
2012=137/14460
0 0.01
Return on Assets
Profit for the year 63 137
Total Assets 9529 8621
Return on Assets Profit for the year/ Total Assets
2013=63/9529
2012=137/8621
0.01 0.02
Return of Capital
employed
Earnings Before
Interest and Tax
(EBIT)
297 301
Capital Employed 3659 3536
ROCE Earnings Before Interest and
Tax (EBIT) / Capital Employed
2013=297/3659
2012=301/3536
0.08 0.09
 Liquidity ratio-From the analysis of annual report of firm, it is found that liquidity
position of firm has improved form the previous years because in 2012 it was .46 and in
2013 it had .55 current ratio. It assist management of firm to make effort in relation to
ensuring smooth flow of production and deliver good quality of services to large number
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of buyers. Further, quick ratio of firm was .28 in 2012 and the same in 2013 was .24
(Quick Ratio, 2015). It is showing that, organization may face problem for meeting its
short term obligation in order to providing services to number of visitors. It has direct
impact profitability. Profitability ratio- Profit margin of TUI travel and plc is decreasing to a great extent. It
depicts that organization can face problem of high deficit due to increasing expenses. It is
because net profit for the year 2013 is going down in comparison to 2012. It creates
problem in providing services to visitors and adverting for the same. On the other hand,
Gross profit in 2012 was 10% and the same increased in 2013 by 11%. Due to increased
cost of finance firm , profitability is going down because firm have to pay higher cost to
outside parties (Ledgerwood and White, 2006).
 Return on capital employed-It is an important ratio that provides detail about rate of
return for shareholders who have invested money in the organization. By revealing
financial information, it is found that in 2013 shareholders of TUI travel plc are getting
less return. It depicts that firm can face problem related to investment that affect its future
business activities. Further, inventory turnover ratio is also not appropriate by which
overall expenditure of ht firm is increasing (Allen and Economy, 2011). It creates
problem in the daily transaction and prices of services may be increased to a great extent
(Inventory Turnover Ratio, 2014). On the other hand, firm is also not managing its assets
efficiently that creates additional cost. Owing to this, management may not able to ensure
about consistent flow of production.
TASK 4
4.1Analyses sources and distribution of funding for the development of capital projects
associated with tourism
Thomas Cook can can raise finance for the development of capital project by the help of
several types of public and non-public resources. Regional development- In order to develop heritage sites and Cross Railway project as
well as Tourism information point, management of Thomas Cook can easily access to
public fund so as to develop integrity bridge way (Bandyopadhyay and Saha, 2011).
Also, this proves to be effective in developing route cycle.
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 National lottery committee-On the other hand, issue of equity share and taking loan as
well as leasing companies proves to be effective. The reason behind selecting this source
is to access cost effective long term source of finance. Equity financing-In case of Cross Railway project management of firm can raise long
term finance by issuing equity share. It enables organization to ensure proper
development of project so as to remove barriers that are being faced by tourism. In
addition to this, issue of share prove to be effective to determine well being of tourism
sector.
 Bank loan and retained profit-On the other hand, retained profit is cost effective sources
of finance by which firm can cater its short term requirement. In this, firm does not need
to pay cost of finance to outside party. It facilitate to implement project like footpath
development and improvement. However, at the initial stage firm have to incur huge cost
but gives long run benefit so that management can be able to achieve long as well as
short term objectives. On the other hand, sources of finance create several types of cost
for the firm that increases additional cost and may decrease profitability of the firm at the
initial stage.
CONCLUSION
From the report, it can be said that, finance and funding is the imperative way to manage
all business activities. It assist firm to reduce cost of production and make effort in relation
attract large number of visitors by providing services on affordable prices. It can also be said
that, management accounting information is way to expand business and achieve aim of
corporation within stipulated time span. Further, financial statement plays significant role for
taking decision regarding future expansion and growth of firm.
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<http://www.myaccountingcourse.com/financial-ratios/inventory-turnover-ratio>.
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